Why Are So Few People Working?

After a report on Friday showed the unemployment rate dropped to 7.8%, James Pethokoukis of the American Enterprise Institute wrote, "If the labor force participation rate was the same as when President Obama took office, the unemployment rate would be 10.7%."

And he's right. But it's not a very relevant observation.

Explaining this requires some jargon, but it's important to understanding the unemployment rate.

The standard unemployment rate most cited in the media, called U3, is calculated by dividing:

  • The number of Americans who are not working but who looked for work in the past four weeks (the unemployed).
  • The number of working-age Americans who are either employed or unemployed (the labor force).

You can tell that these leave wiggle room to produce some fuzzy figures. If you're out of work but haven't been looking for a job in the past four weeks, you're not counted as unemployed -- or even part of the labor force. You're in no-man's land.

A more complete way to take the temperature of the job market is the labor force as a percentage of the population, called the labor force participation rate. It's the best way to keep track of previous workers who have dropped out of the labor force. And as Pethokoukis hints at, it's plunged:


Pethokoukis is right that if we had the same labor force participation rate today as we did in early 2009, the unemployment rate would be much higher than is currently reported. 

But before you shout conspiracy!, we have to ask why the labor force participation rate has dropped so much.

Yes, part of it is because many have given up looking for work, which I assume is the point Pethokoukis wants to make. But that doesn't explain all of the decline. Or even most of it. Three big explanations for the falling participation rate have nothing to do with the recession:

  • The country is aging.
  • Men have been leaving the labor force consistently for 60 years.
  • More people aren't working because they're in school.

Let's go through each one.

The first baby boomer turned 65 last year. Many retired before then, and millions will leave the work force over the coming decade. And since the boomers are an abnormally large group, their retirement means a lower percentage of the population is of prime working age.

One of the best ways we know the falling participating rate is due to aging and not the recent recession is because most of the decline was predicted by sociologists several years before the recession began:

"An aging population will push down labor force participation whether the economy does well or poorly," writes the Heritage Foundation. Don't blame the president. Blame my parents.

Next, men have been fleeing the labor force consistently since the Bureau of Labor Statistics began keeping track in 1948:

There are all kinds of explanations for this, including a changing dynamic between male and female breadwinners, increased disability benefits, and fewer opportunities in industries like manufacturing that were once male-dominated. Whatever the reason, it's clearly not linked to the last recession, or even any recession. From 1995 to 2000, when the economy boomed like never before, the labor force participation rate for males fell. For decades this was balanced out (and then some) by a surge in the female participation rate. But now that female participation is topping out, the overall participation rate suffers a net decline.

Last, the overall participation rate is falling partly because more people are in school:

Source: White House.

The Heritage Foundation elaborates on rising education enrollment and how it changes labor participation:

One of the greatest costs of obtaining an education is the opportunity cost of going to school. Most students cannot work full-time jobs while studying full-time. They forgo the income they could have earned in order to study. In a recession, when job opportunities decrease, this opportunity cost falls. It becomes relatively less expensive to go to school: Students only lose money by not working if they could have found a job in the first place. A weak economy will cause many people to attend school that would not otherwise.

Someone recently asked me what I think is the truest measure of our weak jobs market. My answer: The number of Americans not in the labor force has increased by 9.5 million since late 2007. Of those, 2.1 million say they want a job but can't find one. That's probably the fairest estimate of today's job shortage compared with five years ago. 

Fool contributor Morgan Housel has no positions in the stocks mentioned above. Follow him on Twitter, @TMFHousel. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 10, 2012, at 1:40 PM, Mathman6577 wrote:

    I think one reason that needs to be explored in more detail is the entitlement state mentality created by the government. Some people will not work (or work part-time) and just survive on a bare minimum of government support. And of course these people will not admit to that in any survey measuring unemployment. The numbers will not show up in any stats.

  • Report this Comment On October 10, 2012, at 3:03 PM, DS31 wrote:

    Morgan,

    Off topic, but I'd love to see you write about an issue that I've never seen a clear answer to. I can figure out what percentage of my total income is paid in Fed tax, and State tax, and Payroll taxes. I can estimate my sales taxes and look up my property tax. I know there are multiple "regulatory" taxes (like tolls, utility taxes, sin taxes, user fees, licensing/registration fees, etc.) that consumers pay and about which conservative pundits rail against. Often, they claim that 45 - 50% of one's TOTAL income is paid in taxes in one form or another. I've always thought that number was waaaaay too high but I can't figure out how to estimate these hidden "regulatory" taxes. (Incidentally, liberal pundits never seem to challenge or disprove the 45 - 50% taxation claim.)

    Is this an issue that might be of interest to you? Could you possibly consider a future article to shed some light on this? I know your readership will tremendously appreciate this and I can assure you that I'll forward that article to everyone I know!

    I love your work...

    Dan

  • Report this Comment On October 10, 2012, at 3:19 PM, TMFMorgan wrote:

    ^ It's a great idea. Look for an article early next week.

    Thanks,

    Morgan (who, alas, doesn't pay royalties for good article ideas.)

  • Report this Comment On October 10, 2012, at 3:36 PM, DS31 wrote:

    You made my day!

  • Report this Comment On October 12, 2012, at 11:20 AM, czbill12 wrote:

    Morgan, interesting points, but I would strongly consider Jack Welch's arguments in the Wall St. Journal, as well as corroborating data from ADP, which is taken from actual payrolls. The 7.8% simply doesn't add up this month. As noted by Welch, if you have a part time job, you may be considered employed, which skews the data.

  • Report this Comment On October 12, 2012, at 11:26 AM, TMFMorgan wrote:

    ^ What doesn't add up? Just saying "it doesn't add up" isn't math. Show me how it doesn't add up.

    <<As noted by Welch, if you have a part time job, you may be considered employed, which skews the data.>>

    This has always been the case. Amazing how many people seem to think this just changed under the current president.

  • Report this Comment On October 12, 2012, at 11:31 AM, GHodge100 wrote:

    Great article. I'd welcome ideas as to how to stimulate greater labor force participation rates. Perhaps slowing down immigration (both legal and illegal), reducing disability payments, etc.

    Thanks again.

    Gordon

  • Report this Comment On October 12, 2012, at 1:13 PM, mclaugph wrote:

    Good article (as usual), Morgan.

    <<I think one reason that needs to be explored in more detail is the entitlement state mentality created by the government. Some people will not work (or work part-time) and just survive on a bare minimum of government support.>>

    I think we need to be careful in how we use the word "entitlement". I know people who are receiving gov't support, none of whom are content...it does just enough to barely survive but not enough to lift you out of a tough situation. I don't know anyone who enjoys existing on a poverty level of income/support...do you?

    Additionally, these people were once hardworking taxpayers...so if they are 'entitled', it's because they already paid into the system. Finally, some people -- like an disabled elderly relative of mine -- simply are unable to work to age 70. Gov't support in the form of SS is critical for keeping their lights on. Reducing this person's gov't benefits would not help them get a job -- they would still be unemployable due to age and physical limitations.

    People aren't working for a host of reasons, and while for every system there are those who will try to cheat/freeload, I think it's a pretty small percent of the nonworking.

  • Report this Comment On October 12, 2012, at 1:37 PM, gpearson601 wrote:

    To what extent have we had an "employment bubble" during the past few years? The "housing bubble" was due to too many housing units being produced given the effective demand. Did companies hire too many workers at an inefficient rate given realities of a lower rate of growth in number of consumers? Is 6% - 8% unemployment the new normal until we balance employment with growing number of consumers?

  • Report this Comment On October 12, 2012, at 1:48 PM, DividendsBoom wrote:

    U3 doesn't fully grasp the entirety of the labor market. I equate it to the DOW and the stock market. Both should get the general trend right over long periods but viewed with the knowledge that their are more telling alternatives.

    That doesn't make either a fraud. Speaks more to the public, media and others' desires to latch on to a simple, catchy number.

  • Report this Comment On October 12, 2012, at 1:55 PM, TMFMorgan wrote:

    ^ Using U6 or others can be misleading too. A recent study by Capital Economics showed many of those working part time but wanting full time work (counted in U6) are working between 30 and 35 hours a week. So, someone who is working 35 hours but wants to be working 40 hours would be counted as "unemployed" if the media used U6. Frankly, I'd find that more misleading that U3.

    Neither are perfect.

  • Report this Comment On October 12, 2012, at 3:50 PM, Darwood11 wrote:

    Yes, "An aging population will push down labor force participation." However, as compared to the projections it seems we arrived at this point 5-10 years sooner than we should have.

    ===

    I prefer the U6 statistic. However, I've found it more useful to look at the trends of the unemployment numbers. I think U6 provides a better view of the destruction wrought by recessions.

    While some studies question the validity of U6, I am of the opinion that underemployment is truly destructive to one's financial well being. A worker employed 30 hours a week has a pay cut of 25%. 35 hours per week, "only" 12.5%.

    These are devastating cuts for most workers in an economy where the "savings" rate has currently been stated to be 4%. In other words, no emergency fund, no building up of current savings and no retirement savings via a Roth-IRA.

    It also takes a toll on the economy as these underemployed workers don't have cash for discretionary spending. I can speak from personal; experience that this "underemployment" has contributed to foreclosures and related financial distress in condo associations, as owners find they cannot afford fees, or even required homeowners insurance, much less the mortgage.

    Underemployment is not always a reality for all part-time workers. For years my firm used a few part-time workers. coupled with a flextime policy, it allowed us to tap very skillful workers who were out of the workforce for personal reasons; for example, as homemakers. They were thrilled to work 20-24 hours a week and we did give benefits. .

  • Report this Comment On October 12, 2012, at 3:58 PM, TMFMorgan wrote:

    <<However, as compared to the projections it seems we arrived at this point 5-10 years sooner than we should have.>>

    Yes. There's no question other forces are at work, including people dropping out because the economy is so weak. But drop outs aren't the only reason, as some make it out to be.

  • Report this Comment On October 12, 2012, at 5:04 PM, ChrisBern wrote:

    Good article. A few counterpoints: more elderly than expected are staying in the labor force due to not being able to retire as early as they would've liked. That offsets some of the predictable drop from boomers retiring.

    Also, why are more people going back to school? Mostly BECAUSE there aren't many jobs. In an article that points out that there are some legitimate reasons why people aren't working, I think it's important to point out the cause-and-effect of rising school enrollment started with a poor jobs outlook and not vice-versa (not contradicting you, just adding that in).

    Also in the Actual and Project Participation Rate graph, one can still note a huge difference between the projected labor force (which factors in demographics) and the actual one. There's a big gap there AND the fall in actual labor force has been quite steep.

    As others have alluded to, there are other unhealthy signs in the economy such as dramatically increased disability, food stamps, and 99-week unemployment. If one were to take those entitlements back to their level 10-15 years ago, today's economic outlook would "feel" much more like a depression than it does today.

  • Report this Comment On October 12, 2012, at 6:31 PM, maniladad wrote:

    Hi Morgan, As ChrisBern noted, the matter of people who are out of the labor force because they are in school seems to be a circular argument. People are out of the labor force because they are in school because they can't find work.

    One issue that you didn't address is that some, perhaps many, jobs go unfilled because there is no one with the requisite qualifications to fill them. I don't know how you'd go about quantifying that but it is one cause of unemployment that might be rectified by better correlation between education or job training and employers' needs. Perhaps we need, e.g., fewer history majors and more electrician apprentices. Or perhaps "the government" could subsidize necessary training to encourage employers to do what they should be (or already are?) doing anyway. It's a better way of spending our money than unemployment benefits.

    Finally, it's laudable that you respond to so many of the comments on your articles. To me it indicates a willingness to consider other opinions and to explain your own without rancor in the face of questions or criticism. Fool on.

    D

  • Report this Comment On October 12, 2012, at 7:50 PM, TMFMorgan wrote:

    Yeah, I can see how the education argument can be seen as circular. I still think it's valid here. It's not the same as people giving up. Also, the trend of rising education enrollment began well before the recession.

    -Morgan

  • Report this Comment On October 12, 2012, at 9:03 PM, Citellus wrote:

    As mclaughp said, I think we need to be careful in how we use the word "entitlement".

    We also need to understand what an “entitlement” is and how it is regularly being misused. When related to the federal government, and probably state governments too, an “entitlement” is defined as a benefit that occurs because it is written into a law. It may or may not be earned or otherwise deserved by the recipient.

    I currently have three entitlements: medicare (which I paid into), social security - but not much (which I paid into), and a federal government pension from my career work (for which I paid a moderate portion into, along with a decent government contribution, much like most large private businesses used to do) These are all “entitlements” because they are written into social security, medicare, and civil service laws. The private corporation benefit is not an “entitlement” because it is based upon a contract. As a veteran during Vietnam, I also had two other entitlements, the GI bill for college and a veteran’s guaranteed home loan. I also paid for these, in a sense. But I did not pay nearly as much as veterans who are receiving a disability entitlement benefit, or whose families are receiving death benefits - also an entitlement.

    Sure, welfare benefits and food stamps are entitlements also. Some people really need these, usually temporary, and a few milk the system, just like a few stock advisors (but never Motley Fool - which is why I am here) milk that system. And as mclaughp also said, people who are receiving that kind of government support are typically not content with it. But politicians love to skew their language to make their points. Many politicians of both stripes do not even understand what the word actually means, so it has to come to be understood as something it is not.

  • Report this Comment On October 12, 2012, at 9:55 PM, Bert31 wrote:

    "Amazing how many people seem to think this just changed under the current president. "

    I don't think Welch or anyone else has said it changed under the current president. If so please post links.

  • Report this Comment On October 12, 2012, at 10:48 PM, wizera wrote:

    the only reason the employment number dropped was california didnt report its unemployment numbers.pure political tactics.

  • Report this Comment On October 13, 2012, at 7:14 AM, NICKELSNICKELS wrote:

    Interesting article. I noticed there's no justification for high unemployment amount minorities.

    Food for thought.

    Although many low paying manufacturing jobs have decreased the fast food industry should have had a significant impact to offset their lost.

  • Report this Comment On October 13, 2012, at 7:27 AM, TMFMorgan wrote:

    <<the only reason the employment number dropped was california didnt report its unemployment numbers.pure political tactics.>>

    Yes, they did report.

    "California's Employment Development Director issued a statement saying the state "has reported all UI claims data and submitted the date on time." A spokesperson for the department also offered an alternative explanation for the drop in California's unemployment claims: "Our weather has been unusually warm which has had some typical seasonal patterns in employment delayed."

    http://www.businessinsider.com/what-happened-with-jobless-cl...

    <<I don't think Welch or anyone else has said it changed under the current president.>>

    Welch's Tweet claimed the "Chicago guys" "change numbers." That's pretty straightforward.

  • Report this Comment On October 13, 2012, at 10:46 AM, Saintmark01 wrote:

    Excellent article, and well defended. There is a growing chorus of research that highlights the future great challenge in this debate - the looming shortage of highly educated workers that our country will need in the decades to come. Part of our country's challenge, regardless of the party in power, is that we are experiencing a seismic shift in labor needs. Knowledge workers, systems engineers, bio researchers, etc. are what is needed. Unskilled labor, and even skilled manufacturing labor, is simply too cheap in other parts of the world. As we are gutting our education system through fiscal cuts and misguided cultural wars we are wrecking the employment future for the coming generation.

  • Report this Comment On October 13, 2012, at 11:46 AM, Mathman6577 wrote:

    I use a lot of statistics in my job. Day to day I see how "any" set of numbers can be manipulated in any direction to suit anyone's needs. I don't think the jobs numbers are any different.

    Regarding that, I think we need to apply a qualitative addendum to the quantitative analysis. By any measure (unemployment rate, participation rate, etc.) the labor situation is horrible. The politicians can spin it anyway they like it.

    The bottom line is that the economy needs to grow in order for jobs to grow. In order for that to happen, taxes, regulations and government spending need to be cut

  • Report this Comment On October 13, 2012, at 12:17 PM, Gorm wrote:

    Welch made 3 points, one of which you addressed.

    The other two, public sector job additions (602k) and private sector job additions (873k), BOTH of which are multi-decade HIGHS don't get with other reports. When an economy is lumbering along at a 1.3% GDP, such exceptional job increases should be READILY APPARENT!!

    Gorm

  • Report this Comment On October 13, 2012, at 12:29 PM, DrJCA1 wrote:

    As far as entitlements go, while you may be correct in some of your assumptions and facts, the underlying fact of this particul;ar problem is the simple fact that half of our citizens are getting some form of government help every month. How long do you think we can keep that up? If we fully supported 10% of the population it wouldn't be much of a problem, but with around 150 million folks getting a "check" every month, it becomes unsustainable for much longer. Liberal spins will not come up with the actual money to support all these people.

  • Report this Comment On October 13, 2012, at 12:30 PM, TMFMorgan wrote:

    <<BOTH of which are multi-decade HIGHS don't get with other reports>>

    No single month's report should be taken seriously. The household report (where the 800k figure came) is nearly identical to the establishment report when looked at 6-month averages. 800k jobs weren't created last month, but 315k probably weren't lost in July and Augst, 170k probably weren't lost in April, and 423k probably weren't lost last June. It's always a volatile report. The only reason people are getting excited about it now is because we're a month away from the election.

  • Report this Comment On October 13, 2012, at 12:46 PM, ynotc wrote:

    Morgan,

    The aging thing is a Red Herring. How does that explain the fact that unemployment is highest among youth?

    Theoretically as an aging population leaves the workforce they would be replaced with the younger generation. This is not happening because fewer jobs are being created.

    Thanks for the article I appreciate that you explore these topics in depth.

  • Report this Comment On October 13, 2012, at 1:12 PM, dumpty2 wrote:

    It is a learning experience to find out how many ways there are to manipulating job numbers. About students, how many more are working part- time because of the awful uninvestigated rise in cost in college education and to marginally minimize the awful rising burden of student debt, their poorest -ever prospects of finding a job after graduation to start paying that debt? How many people are listed as unemployed because they are working the lower average of hours rather than the full hours and are there enough of them to count in the statistics as enemployed? Where do the job numbers show where people such as chemical engineers are working menial jobs at a fraction of the pay of the level of their background because they are not people who want to fall back to relying on the government? When did seniors who retire, and there may be a greater percent of seniors of retirement age in our population-including what percent who can no longer afford to retire,-ever count as unemployed and thus are skewing the statistics? How many women today are so well off that they choose to retire, more than ever? How many families, more than ever, require both parents to work to stay afloat?

  • Report this Comment On October 13, 2012, at 1:36 PM, SeminoleJet wrote:

    ALL RESPECT TO THE FOOL, BUT BANKS ARE MAKING MORE MONEY IN DERIVATIVES THAN THEY WILL MAKE IN LOANS. BUT THE OTHER REASON IS COMPANIES ARE HOLDING ALL THE MONEY THEY HAVE BEEN MAKING ALL YEAR AND FOR THE PAST 3 YEARS AND NOT SPENDING. JUST LIKE BANKS, HOLDING MONEY AND INVESTING NOT IN PEOPLE BUT IN DERIVATIVES AND BLIND TRUSTS. I DON'T KNOW IF YOU WILL PRINT THIS, BUT THAT'S OK, TOO.

  • Report this Comment On October 13, 2012, at 1:53 PM, ceallachqn wrote:

    We happen to live in CA. My husband has been looking for work consistently for the past two years. We don't collect UI, we are surviving off savings and parental support. The jobs are listed, but then you talk to HR - yes, we list the jobs, but we are in a hiring freeze. One of the primary employers in our area just laid off 47 people from engineers down to inventory employees.

    He just applied for a job that is out of state. It will mean considerable travel for him, but as retired military, we can handle it as a family.

    My nephew, who is saving money for college, has been looking for work over the past year. He is supported by various family members and is not collecting UI.

    We represent the unreported unemployed and believe me, there are others like us. I do think the rate is much higher than what is reported in all of the fancy statistics. I don't put much chalk in them.

  • Report this Comment On October 13, 2012, at 2:39 PM, AlanWest wrote:

    The global economy is a train wreck and it won't get better anytime soon. Food, gas and housing costs are going up and up with it all we can do just to get by.

    The I-Ching "Timewave Zero" prediction confirms what the Mayan calendar has already told us...that major changes to our world will occur in 2013.

    http://www.familysurvivalcenter.com/news.htm#iching2012

    Stop chasing material goals and get your priorities straight. Set aside food and supplies to provide for your family now.

  • Report this Comment On October 13, 2012, at 3:00 PM, GranMaggie wrote:

    I would suggest checking the increase in entrepreneurs who have started new businesses in the past 3 to 5 years. A recent article in the Entrepreneur magazine (last month?) showed a huge number who are no longer in the work force, but own their own companies, as well as direct sales professionals, -- An industry that always grows in a depressed economy -- and doesn't require having an employer. I believe there needs to be a more cognizant report of all forms of so-called employment.

    GM

  • Report this Comment On October 13, 2012, at 3:38 PM, dcorley wrote:

    I like GranMaggie's comment. This, after all, is the United States. Opportunity is everywhere.

  • Report this Comment On October 13, 2012, at 3:52 PM, PappyBlueRibs wrote:

    MathMan6577 wrote about "the entitlement state mentality created by the government...these people will not admit to that in any survey measuring unemployment...The numbers will not show up in any stats."

    That's handy! And you know about this entitlement state mentality how? Watching the right TV programs?

  • Report this Comment On October 13, 2012, at 4:00 PM, LoadDrive wrote:

    An Old Saying from Mark Twain, he said that figures don't lie, but liars figure! Think about that when you come out of the White Towers and Look with your own Eyes at people standing in the unemployment lines. But it's not All bad; My brother has a Business that is doing Great! He sends the Teams out (When the court calls him) to peoples homes that are being foreclosed, to drag their Stuff out into the street & Driveways. Brother said "Business Really Picked-Up" when Obama took office; He said he may even Vote for Obama, because of how good his Business is doing!

  • Report this Comment On October 13, 2012, at 4:11 PM, hughesbayou wrote:

    Left out of the equation is all the people who are or who have become self-employed. Nobody knows if and when they are working. I've been this category for years and have a lot of friends who are the same. We just do stuff for money. I guess they could be sussed out by looking at income tax filings.

  • Report this Comment On October 13, 2012, at 4:39 PM, klhix wrote:

    Other reasons that may not be reflected in the job participation numbers:

    - People are living with their parents and taking care of them because we have no national healthcare system.

    - People are working "under the table" more than ever before.

  • Report this Comment On October 13, 2012, at 6:17 PM, dumpty2 wrote:

    Facts donot lie nor Obama-like, pass the buck. The nuber in poverty is up and the number on food stamps is up and those are real numbers, unlike "I know some friends who are self -employed" If banks are investing on derivatives instead of gtving loans, the government should be involved with dealing with that. If banks are not giving loans and businesses are holding onto cash, maybe it is because of the excessive number of government employees who have to justify their job by creating new regulations to the tune of 78,0000 pages a year, often impeding businesses and banks because the reg. creators create regs. either without knowing what they are doing or not forseeing unintended consequenses

  • Report this Comment On October 13, 2012, at 6:38 PM, sevenheart wrote:

    Fewer jobs are being reported as created each month as well and the percentage of unemployed is dropping out of proportion. Granted it is a complex subject to capture a picture of at any one point in time, but it just doesn't add up right. By the way, are you voting for Obama Morgan? Just in the interest of full disclosure.

  • Report this Comment On October 13, 2012, at 6:49 PM, BiotechMarc wrote:

    I'm not sure that people doing start-ups and thus being employed at start-ups accounts for many uncounted jobs, Start-up numbers are down significantly, though this is part of a decade long trend. In fact, since most jobs are created by younger companies,

    I wonder how much this trend contributes to the overall difficulty in getting employment jump-started again. Further along that line, roughly 25% or more of start-ups are founded by immigrants or their children. Unfortunately, changes in immigration have made it difficult for educated immigrants, precisely the type that would found companies, to stay in the US.

  • Report this Comment On October 13, 2012, at 7:11 PM, bornboring wrote:

    Hi Morgan,

    Much appreciated if you would round up your article with these 2 numbers:

    1. Number of able bodied who left fortress America to the greener pastures;

    2. Number of people employed in the current "election" industry.

  • Report this Comment On October 13, 2012, at 9:41 PM, sanit87 wrote:

    What about taking into account that companies need fewer people to do certain jobs, that now a Machine or robot or computer can do cheaper . These people being let go don't have the experience to do other forms of work. As technology advances less people are needed. I know it's happened to me and lots of other people that I know. It's hard to teach an old dog new tricks.

  • Report this Comment On October 13, 2012, at 9:50 PM, dumpty2 wrote:

    The Motley Fool has for the first time, seemingly subtley, attempted to ease the democrats problems or make their problems more palatable.First they pointed out that lower taxes and creation of jobs do not correlate after being reviewed decades back. True, except what are high taxes and what are low taxes by definition? What other factors are occurring simultaneously, like government regulations-either too few or so many that they may impede hiring at the same time. What regulations at the same time are impeding banks from giving loans? When have such a small percent of the population borne the entire responsibility for all the income tax revenue? When has there been more uncertainty of where the tax code is going and its impact on companies and their hiring? When has there been an entity such as obamacare to throw a wrench in industry planning? Would lowering taxes and at the same time starting out to straighten the tax code or lowering taxes and at the same time help unemployment? Morgan's thoughtful points tended to some extent marginalize real problems with unemployment by explaining the as this or that that are outside of the governments doing a plain BAD job.

  • Report this Comment On October 13, 2012, at 10:51 PM, Merton123 wrote:

    Looking at future trends - what happens as people jobs are displaced by technology? I can go to Walmart and buy my purhases without having to go through a clerk. Maybe the falling labor participation rate can partially be attributed to labor saving technology? And how we as a society going to deal with the people who have become unemployed because of labor saving technology. Do we create make work jobs like Oregon has by requiring gas stations to employ people to fill people cars with gas. You can't fill your car with gasoline in Oregon. This make work requirement has taken many unemployed people off of the street

  • Report this Comment On October 13, 2012, at 11:13 PM, acabal wrote:

    I think you're also not considering that productivity has increased, which leads to companies making do with fewer workers.

    In 2008, we had two people leave my department. The rest of us (4) were required to absorb the workload. So things just got put on the back burner and left undone until it becomes a high priority task.

    We brought in a part time employee that needed more hours in 2010. It takes some of the pressure off, but not all of it. We get unpaid externs from a local college for a month or so at a time at infrequent intervals to also pick up some of the slack.

    It's now 2012. Upper management approved the hiring of ONE additional worker for our department. We offered it to our part time employee, but she refused as she has her ailing parents to attend to. That was a couple months ago. We have another extern starting Monday.

    The position still remains unfilled, with no attempts being made to hire.

  • Report this Comment On October 14, 2012, at 5:28 AM, IlanBigfoot wrote:

    Don't forget all those folks who are still getting an unemployment insurance check, but are working "under the table".

    Lots of folks in our area are doing yard work, babysitting, tutoring, web-based jobs, etc. Pay is in the $10-25/hour range, and I'm confident isn't getting reported.

  • Report this Comment On October 14, 2012, at 7:31 AM, MichaelHamilton wrote:

    All the men stopped working because they have so much cash, they don't need to work any longer.

  • Report this Comment On October 14, 2012, at 7:34 AM, wax wrote:

    Incredible!!

    All of these graphs and charts and links to this and that, and when it was all over, I learned nothing.

    In the end, I could care less about all of the crap in this article except the one thing it does not contain.

    The actual unemployment rate.

    Wax

  • Report this Comment On October 14, 2012, at 8:58 AM, oberta wrote:

    Productivty as a consequence of competition as is written by Sanit87 and Acabel leads to production with fewer people.

    Lately we see more and more purchases/sales via the internet which reduces the amount of retailers and shops.

  • Report this Comment On October 14, 2012, at 9:08 AM, 3rdcitizen wrote:

    A truly complicated subject which is impossible to write about full and complete facts in just a few paragraphs. Nice attempt but falling far short of reality.

    First question: How do you know whether or not I applied for a job this weeK? How does the government know?

    2nd) what government regulations stifle my decision to accept a part time job while receiving unemployment? Could it be an immediate 60% reduction of earned income for every dollar I might earn working part time, affect my accepting a part time minimum wage?

    3rd) If I start my own business, I am now counted as employed while I may be earning basically nothing as I try to build the business.

    4) When unemployment does run out, we are counted as no longer seeking work, unless it is through a government agency.

    5) Recognizing retirement is out of the question until I can no longer move, This old guy is back in school and trying to find part time work, trying to be part of the workforce.

    6) Occupy wall street was protesting at Obama's Job Czar Jeffery Immelts home, as one of the 1%er's, who was also responsible for sending US jobs overseas. Seems they forgot he was one of their cronies.

  • Report this Comment On October 14, 2012, at 9:10 AM, ETFsRule wrote:

    "

    TMFMorgan wrote:

    <<BOTH of which are multi-decade HIGHS don't get with other reports>>

    No single month's report should be taken seriously. The household report (where the 800k figure came) is nearly identical to the establishment report when looked at 6-month averages. 800k jobs weren't created last month, but 315k probably weren't lost in July and Augst, 170k probably weren't lost in April, and 423k probably weren't lost last June. It's always a volatile report. The only reason people are getting excited about it now is because we're a month away from the election.

    "

    Exactly right. The household survey isn't particularly meaningful, because:

    1. The houshold report always has a lot of variance due to a small sample size.

    2. Those aren't the official numbers reported by the BLS.

    3. The average American citizen is generally only going to see the official BLS numbers - not the household report.

    4. The numbers from the household report are adjusted before they are used in any offical statistics.

    5. If the government was trying to release phony numbers, the logical way to do so would be to alter the adjustment process, or in some other way affect the official, BLS-released numbers. There would be no point in simply messing with the household survey numbers.

    6. The official numbers, released by the BLS (part of the executive branch of governemnt), do not show any unusual job gains in September. We have already had several months this year with higher overall job growth. Therefore, even if the household report numbers were high, this did not affect the final, reported statistics. Source:

    http://research.stlouisfed.org/fred2/graph/?g=bNb

    7. There was not an unusual increase in government employment in the BLS numbers. There was a gain of about 10,000 jobs, which is a decline of more than 75% compared to the public-sector job growth from August. Source:

    http://research.stlouisfed.org/fred2/graph/?g=bNc

    Here is another excellent debunking of Welch's politically-motivated, factually unsupported conspiracy theory:

    http://www.businessinsider.com/mauldin-the-unemployment-surp...

  • Report this Comment On October 14, 2012, at 9:23 AM, ETFsRule wrote:

    "Darwood11 wrote:

    I prefer the U6 statistic. However, I've found it more useful to look at the trends of the unemployment numbers. I think U6 provides a better view of the destruction wrought by recessions.

    While some studies question the validity of U6, I am of the opinion that underemployment is truly destructive to one's financial well being. A worker employed 30 hours a week has a pay cut of 25%. 35 hours per week, "only" 12.5%. "

    If you're talking about the September numbers (which is the topic at hand, after all), then it's worth mentioning that the increase in part-time workers is perfectly normal, and happens every September. This is shown in the following graph, which was taken from the last link in my previous post:

    http://static2.businessinsider.com/image/5074d7a4eab8ea92740...

    As for the U6, I think it shows the same overall trend as the unemployment rate. Here are both graphs since the day Obama took office:

    http://research.stlouisfed.org/fred2/graph/?g=bNf

  • Report this Comment On October 14, 2012, at 1:36 PM, slickandjake wrote:

    I think one major thing missing from this article is the root cause of the decrease in jobs. You describe some of the symptoms of the decrease in labor participation but what is causing it? My contention would be that companies are putting their money in investments they feel will give a better return versus investing it in new employees. Therefore I believe the personal debt of individuals is reducing consumer spending and until that personal debt is paid off sufficiently the economy will be in neutral/first gear and companies will not be hiring in significant numbers. My opinion is that if the Presidential candidates want to stimulate the economy they should be focusing on how to get people to pay off personal debt in an accelerated manner.

  • Report this Comment On October 14, 2012, at 2:01 PM, xetn wrote:
  • Report this Comment On October 14, 2012, at 3:42 PM, Darwood11 wrote:

    @ETFsRule

    The U6 rate is relatively new to the charts.

    What may be missed in the statistics is the effect that such underemployment may have on the economy.

    According to the charts at the St Louis Fed, we are just about 2% higher unemployment than the "normal" UNRATE or U3.

    According to the BEA, the current GDP is $15,585 Billion. If the economy is 70% consumer, then the "loss" due to unemployment is $6.68 Trillion.

    If we accept that a "normal" unemployment is about 6%, the loss to the economy is only about $5.1 Trillion annually, at current unemployment numbers.

    That number can be equated several ways. One is in the number of discretionary purchases, such as iPhones, that are deferred. Another is in the number of vital purchases deferred. Even with the current high level of "food stamp" purchases, it has been stated that about 18 million children go without proper food in the U.S.

    I realize the issues are complex, and some of these children go hungry because their parents have the wrong commitments in life. I am very clear that if we sent a check to some of these parents, they'd spend it on something other than feeding their children.

    My interest in the U6 number is simply this; it provides a better indicator of the magnitude of the employment problem in the U.S. and the consequences thereof.

    I have no interest in "rose tinted" glasses. Nor am I a "wine glass half full" person. I prefer to equate statistics into meaningful indicators of the real magnitude of problems in this country. A $trillion is a lot of money, by any measure.

  • Report this Comment On October 14, 2012, at 4:07 PM, ETFsRule wrote:

    "I prefer to equate statistics into meaningful indicators of the real magnitude of problems in this country."

    Agreed.

    You brought up the word "trend", so I compared the trend in the U6 with the trend in the normal unemployment rate. I think they are similar.

    I never said that the economy is "good" right now, but I do believe it is improving - and I believe this is true regardless of which statistics you choose to look at.

    As for personal discretionary purchases, I am not sure which numbers you are looking at, but I believe this is one area of the economy that has bounced much faster than people expected:

    http://research.stlouisfed.org/fred2/graph/?g=bNH

    Government spending is the area that has really dropped off in recent years - the gov't is now spending less than they were a year ago, which is quite the opposite of what we are seeing in the private sector:

    http://research.stlouisfed.org/fred2/graph/?g=bNI

  • Report this Comment On October 14, 2012, at 4:07 PM, ETFsRule wrote:

    ^^^ "bounced" = "bounced back"

  • Report this Comment On October 14, 2012, at 4:30 PM, tomd728 wrote:

    No economy expansion will fill what basic technology has reduced in manpower needs.

  • Report this Comment On October 14, 2012, at 4:50 PM, neocolonialist wrote:

    Not sure I buy any of this, even though it is very well written.

    First, even though our population is aging, its also expanding yes? No matter what we end up with a higher # of folks that "ought" to be working right? Now if conditions suck and we have a lot of old baby boomers that decide to retire early, thats okay, but it would take a lot of geezers to make up "most" of the plunging labor participation percentage.

    The whole statistic about men leaving the labor force is weird as well. If there is a shift in breadwinner status from men to women, wouldn't we then see a corresponding huge uptick in women coming into the labor force? And thus this whole point would be a wash? Now, disability benefits and other handouts from the Fed could very well be a factor, and that could use some more analysis.

    The school statistics are kind of humerous to me. In my entire professional career I have only ever known 1 guy that stopped working to go to school. I have known dozens of guys that got laid off, couldn't find work and went back to school to try to improve their employment chances. To count these folks out of the labor market is funny math to me. I am sure we have a MUCH larger percentage of folks in this situation. They want work, can't find it and think education might help them. With this many people out of work, its no surprise we have more people going back to school. But not counting these folks as underemployed would be silly.

    I think its pretty clear to anyone involved in business, that these are extremely hostile times for business from a tax/regulation and just predictability perspective. I suspect that that is what provides "most" of the drop in labor participation. And I suspect that if someone can come in and stop all of the huge tax increases slated to hit in 2013, and repeal some of the onerous regulations, especially reporting regulations that are due to hit next year, and bring some regulatory sanity this will go a long way to freeing businesses to go do what they want to do anyway -- grow and hire more help.

    I think Pethokoukis was on to something.

    Good analysis though.

  • Report this Comment On October 14, 2012, at 7:06 PM, DonkeyJunk wrote:

    Have to laugh at those trying to turn numerical analysis into partisan debate. It's always a spin when it doesn't spin in your direction.

  • Report this Comment On October 14, 2012, at 8:32 PM, ETFsRule wrote:

    "I think its pretty clear to anyone involved in business, that these are extremely hostile times for business from a tax/regulation and just predictability perspective"

    Whoa, that is a lot of theories without any factual support.

    In terms of taxes, the top corporate tax rate has been unchanged since 1993, and it is very low by historical standards. For instance, it was much higher from 1942-1987. So there is absolutely nothing hostile about our current tax rates. Source:

    http://www.taxpolicycenter.org/taxfacts/Content/PDF/corporat...

    In terms of regulations, your statement is very vague, so I'm not sure what you are referring to. I would argue that regulations are currently very lax by historical standards; consider the repeal of Glass-Steagall, for instance. So I think you are mistaken here as well.

    In terms of "predictability", this sounds like the type of statement that Republicans often bring up, but it doesn't seem to be very meaningful in my opinion. How are you measuring predictability? Is the economy ever predictable? Is it more predictable when we are in an economic boom, right before we hit a recession? I don't think so.

    "First, even though our population is aging, its also expanding yes"

    Yes.

    "No matter what we end up with a higher # of folks that "ought" to be working right?"

    No. You are ignoring demographics.

    "Now if conditions suck and we have a lot of old baby boomers that decide to retire early, thats okay, but it would take a lot of geezers to make up "most" of the plunging labor participation percentage."

    No one said they are retiring early. They are just getting older and reaching their normal retirement age. This decreases the work force.

    However, I actually disagree with Morgan on this point. He mentioned that the first boomer turned 65 last year. That means it is probably too early for the aging boomers to have any real effect on the participation rate. It will happen soon, but it hasn't happened yet.

    This is shown in the following graph, showing the working-age population divided by the total population. This figure has not yet started to decline (at least, not significantly):

    http://research.stlouisfed.org/fred2/graph/?g=bO9

  • Report this Comment On October 14, 2012, at 8:48 PM, TMFMorgan wrote:

    ^ people can retire before 65.

  • Report this Comment On October 14, 2012, at 9:23 PM, ETFsRule wrote:

    They can also work past 65. But I won't belabor the point, because I agree with most of what you said in the article.

  • Report this Comment On October 14, 2012, at 11:15 PM, neocolonialist wrote:

    >Whoa, that is a lot of theories without any factual support.

    Well you can ignore everything I said after, but there are clearly 26 new taxes that will coming on line with the new health care regulations, most of those next year. And I can't tell you how many new regulations, as we don't know the full extent yet. And the fact that we don't know how many or in what form they take is part of the uncertainty. But the reporting regulations in the medical field are somewhat known and quite heavy. Plenty of people on the street talking about the hurt this is creating as well, like Steve Wynn, et al.

    And, I'm not ignorning demographics, but I have a hard time believing that 27 million jobs or whatever the number is now is due to old people retiring out of the workforce. That would have to be a record I believe.

    You're article claimed that between men leaving the work force, old people leaving the work force and people going to school instead of working that these three groups make up "most" of the change in the labor participation stats. Seems like a nice theory, not a lot of proof.

  • Report this Comment On October 15, 2012, at 12:08 AM, wan2bretired wrote:

    You quote the Heritage Foundation. Here are their conclusions from the extensive article you appropriately cited:

    ey Points

    1 The American economy is experiencing the slowest recovery in 70 years. In addition to persistently high unemployment, labor force participation has fallen sharply since the recession began in December 2007.

    2 Today, nearly 5 million fewer Americans are working or looking for work. This drop in labor force participation accounts for virtually the entire reduction of the unemployment rate since 2009—those not looking for work do not count as unemployed.

    3 Demographics changes—such as retiring baby boomers—explain one-fifth of the decrease in labor force participation.

    4 Two factors account for the rest of the drop: more people are collecting disability benefits and more are studying in school. Both factors reflect the difficulty of finding work. Fully 6 percent of U.S. adults are now on disability insurance.

    5 Job creation fell sharply after the recession began, and has not recovered. The government’s response has been largely ineffective. Instead of voting for vast subsidies and public works programs, Congress should reduce the tax and regulatory burden on businesses.

  • Report this Comment On October 15, 2012, at 8:50 AM, neocolonialist wrote:

    wan2beretired, thanks for that post. I honestly had not seen the heritage foundation report, I had drawn my conclusions from other sources, but that is terribly interesting. Also, thanks for correcting my 27 million down to 5 million. I think I confused another number. Anyway, excellent post, thanks.

  • Report this Comment On October 15, 2012, at 8:59 AM, neocolonialist wrote:

    I dunno, I don't mean to be argumentative here, but did this article here not draw the exact opposite conclusion as one would probably get from reading the heritage article? I guess that is why I posted in the first place.

  • Report this Comment On October 15, 2012, at 10:48 AM, DividendsBoom wrote:

    Do you think an international corporation makes investment decisions based on tax rates between this year and 1955? Is that what you are implying? As in "let's build this year and not 60 years ago, much lower tax rates."

    Or maybe they look more at relevant information, like difference in tax rates for the US and the rest of the world. Difference in overall employment costs between the US and the rest of the world, differences in regulation and so on. This timeline argument for the business climate makes no sense to me.

    Worldwide capital investment is >$trillion every year, that money flows to where the best opportunity for total return are.

    The US with all of it's inherent advantages (comparative stability, abundant energy, excellent workforce, top-tier technology, and many more) can't stop shooting itself in the foot with what it can control.

    Come to terms with the fact that the Cold War is over, and it is a whole different ballgame when it comes to the international business climate.

  • Report this Comment On October 15, 2012, at 10:50 AM, DividendsBoom wrote:

    Directed at ETFsRule

  • Report this Comment On October 15, 2012, at 12:02 PM, vitom999 wrote:

    I agree with neocolonialist--your well written and thought-provoking article and the heritage article suggest nearly opposite conclusions. Also, from a cause-and-effect perspective, the decision of each individual to participate or not participate in the labor force is clearly informed by the attractiveness of that participation versus the alternative of drawing benefits. For many people, it is now both possible and preferable to engineer benefits that are substantially better than the minimum wage jobs available in the current labor pool.

  • Report this Comment On October 15, 2012, at 12:19 PM, ETFsRule wrote:

    "Do you think an international corporation makes investment decisions based on tax rates between this year and 1955? Is that what you are implying? As in "let's build this year and not 60 years ago, much lower tax rates.""

    You mentioned that our tax rates were "hostile", but you didn't mention what was hostile about them. Are they hostile because they are too low? I don't see how you can draw any kind of conclusion about our corporate tax rates unless you put them in some sort of context.

    "Or maybe they look more at relevant information, like difference in tax rates for the US and the rest of the world. Difference in overall employment costs between the US and the rest of the world, differences in regulation and so on. "

    Ok, then why didn't you compare our tax rates and regulations with those of other countries?

    If you look at effective corporate tax rates, we are very similar to most other developed countries. We may be a little on the high side, but countries like Japan and Germany are higher. Larger, richer countries generally have higher rates than developing countries.

    In terms of regulations, ours are much less strict than most other developed countries. How many jobs do you think the US has gained because of REACH, for example?

    http://en.wikipedia.org/wiki/REACH

    The most relevant figure with regards to your overall argument is probably the "ease of doing business" index:

    http://www.doingbusiness.org/rankings

    "Economies are ranked on their ease of doing business, from 1 – 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm."

    We are #4 out of 183 countries. Not bad.

  • Report this Comment On October 15, 2012, at 1:50 PM, DividendsBoom wrote:

    I think it furthers the tax argument when you cite that we are #4 overall, but #72 with regards to taxes. Speaks to the fact that, like I said US has a lot of advantages, but works against itself with what it can control in the short term.

    Additionally, trend is important. That is what a lot of my and other's argument hinges on. The world is getting more business friendly, rule of law is strengthening in Asia, eastern Europe is becoming a legitimate market, Africa certainly has come a long way as far as developing economies. Educated workforces are developing across the world, and infrastructure as well. At the same time the US is well, not.

    Furthermore, I was clearly implying comparing our tax rates to those of other countries, and ours are higher. Businesses make additional investment decisions based on the marginal tax rate, which is way higher than most other countries. The only time the effective tax rate is used, is when their investment would garner lower effective tax rates by utilizing existing corporate tax-code provisions.

    Do we really want to trust congress with creating the correct provisions in the tax code to encourage business investment? Do we want corporations to only invest when they can bend their investments to garner lower tax rates?

    Apparently, 71 countries around the world have a more business friendly tax code than the US.

    As far as regulations are concerned, the most onerous as far as my area of knowledge are those that raise both the fixed and marginal costs of having employees. Does having a $15 / hour worker cost the employer $15 / hour? Nope. Narrow the gap between employer costs, and employee wages, and hiring in the US would start to make more sense.

    I get that when you look at the US and Northern/Western Europe their doesn't seem to be much of a difference, but look at where the economic growth is in the world.

    The US isn't falling apart, not even close, but you are seeing a lot of businesses not investing in the US. Corporations are mostly rationally quantitative when taken in the aggregate.

  • Report this Comment On October 15, 2012, at 1:59 PM, Darwood11 wrote:

    @DonkeyJunk

    "Have to laugh at those trying to turn numerical analysis into partisan debate. It's always a spin when it doesn't spin in your direction."

    To be honest, we could put a monkey in the white house and it might not make a real difference. In other words, it isn't about party, it's about Washington.

    Currently, in the political circles, a lot of people are talking about "who was the better debater; Obama vs. Romney or Biden vs. Ryan.

    Who gives a damn? Yes, if obfuscation, aggression and cutting off (interrupting) the opponent is "better debating" then Sen. Biden is the hands down winner in this group.

    But as a citizen, I do have to ask "politically" which team is the better to lead the country.

    It's the timeless "fluff" versus "substance" argument.

    Ditto for the articles and comments here at the Motley Fool.

  • Report this Comment On October 15, 2012, at 2:13 PM, DividendsBoom wrote:

    Also, for string of debates sake, note only two of these posts have been mind, I think you confused my earlier comment as a continuation of somebody else's argument.

    i.e. Using the word "hostile"

    I would describe our tax code as:

    Silly (having high rates, but yet collecting low amounts),

    Ineffective (labyrinth of incoherent incentives),

    Uneven (corporation with lots of small stake owners double taxed, <100 large stake owners single taxed),

    Odd, (MLP, REIT), and

    Punitive (repatriation taxes).

  • Report this Comment On October 15, 2012, at 9:15 PM, neocolonialist wrote:
  • Report this Comment On October 15, 2012, at 11:19 PM, ben7franklin wrote:

    Intriquing article but comments interesting too.

    re: SeminoleJet wrote-banks are making money in derivatives rather than investing in employment--

    what about Dodd-Frank? I thought derivatives

    were unlawful. Do we need Glass/Stegal reinstated? I think so---

    RE; SEMINOLJET'S COMMENT--DOES ANYONE

    KNOW THE ANSWER?

  • Report this Comment On October 18, 2012, at 4:18 PM, mikecart1 wrote:

    Why are so few people working?

    Answer: They have found a way to exist and not need to work.

  • Report this Comment On October 18, 2012, at 9:09 PM, Bulldozer56 wrote:

    I think there are a lot of people out there that believe they are intitled to free housing & food stamps. I know because I am a landlord & have had several tenants on sec.8 housing assistance. Everyone of them have had their boyfriends living with them, drive decent late model cars and go on vacation like everyone else. Their chidren are always spaced out in age approx. 10 - 12 yrs like it was planned so they can stay on the system. I guess I'm just cynicaj.

  • Report this Comment On October 22, 2012, at 3:36 PM, rlmarshallsatx wrote:

    From what I have heard, businesses are sitting on money because of the uncertainty in tax and regulation policy, not the particular policies themselves. Between Congress and the President, the rules keep changing. For example, if tax holidays for bringing overseas income would be either abolished forever, or set by law every 15-20 years, there would be more incentive to bring foreign income home, rather than let it sit for the next n years while Congress decides on (and business lobbies for) the next holiday. Or if we would set tax policy and not tinker with it every year, then businesses could plan their expenses. It's the uncertainty that causes businesses to sit on their money and not invest it, and that includes hiring.

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